Beware ‘easements’ ahead – Andrew Mirams

Kevin: You might come across this when you’re buying a property, and you might not even be aware that it is happening, but what’s an easement, an easement over a property, and how does it impact the purchase price or how does it impact the purchase? Andrew Mirams from Intuitive Finance is very much in tune with this.

G’day, Andrew. How are you doing?

Andrew: I’m very well, Kevin, and how about you?

Kevin: Yes, mate, I’m fantastic. Thank you. Now you’d be very aware of this. Do you see many people who are not aware of what an easement is when they come to buy a property?

Andrew: It’s a great question, Kevin. It’s very regular, especially in Melbourne, that there will be lots of easements where there’s storm water and things like that, I guess. It goes right back to when the cities were first born, I guess, and there was certain infrastructure put in and people have requirements for drainage, sewerage. It might be carriageway and things like that.

Kevin: Even access easements. Back in the old days, before we had sewerage, they had to get there somehow, and they needed to have those passageways to do it, didn’t they, Andrew?

Andrew: That’s exactly right. Just so that people understand what an easement is, it actually gives someone else a right to have access to that part of your land. So, like I said, if you have drains or things like that that are running in or around your property, you can’t or you shouldn’t really build on those, because if ever there was a block and a water authority or someone like that needed access… It can be common with electricity, too, and pits like that can be placed underground. They need to have access to that so if there’s a block or if there’s some access required, they need to be able to get there.

Kevin: When you go into the process of helping someone buy a property and sort their finance out for them, are you regularly helping them find out where these easements are and giving them access to that information, Andrew?

Andrew: Yes. They’re in the relative contracts depending on the state-based authority. All are a little bit different, but they have to know. In a contract, say, in Victoria, they will absolutely be listed in the section 32, and they’re drawn as a mark on your title. It’s obvious, and it’s one of the things that your solicitor or conveyancer will make you aware of, that there are easements on the property. So, if you are planning on building or changing or doing improvements to your property, it might just mean there are some restrictions around what you can do.

Kevin: I know agents and a lot of sellers listen to the show, and it’s something they need to be aware of, because I’ve seen contracts actually filed because of an undeclared easement. Maybe no one knew about it, but it certainly wasn’t declared to the point of listing or the point of sale.

Andrew: Absolutely. That’s a great point, Kevin. If someone has grand plans of building a great addition onto this property and there’s a property at the back that requires access, it’s obviously going to mean you’re going to have some restrictions and restraints around what you can do.

You just need to be very careful about what the easement is, what it relates to. Certainly not a right of passage but for some older easements that may not even be in place anymore, you might be able to still get a council approvement to build on or around or near them. But you just need to be very careful with that across all the states.

Kevin: Those beneficial easements, too – or access easements, as I think you referred to them there – typically, maybe your neighbor may need a little bit of land. You don’t have to give it to them or sell it to them, but you can actually give them access to it to use it for their benefit.

Andrew: Yes, that’s right. That’s a great point, Kevin. You just need to make sure that any time you’re looking to buy and sell a property, that the easement is declared and the purpose or the use of it or who has the right of access to that.

Kevin: Yes. It even down to you need to talk to your solicitor, too, because not all rights to an easement will pass from one property owner to another. You need to make sure that you get all that clarified and that you can actually pass it on to someone else.

Andrew: Absolutely. And not all easements are created equal, too, so that’s certainly where you need a legal opinion and then a little bit of local knowledge. Turn to your local council and getting some feedback from them would be really important. Research as always, Kevin, is the key.

Kevin: Bottom line, Andrew, your advice is make sure you check all of these things out, work closely with your solicitor and go in fully armed with all the knowledge that you need, both as a buyer and as a seller.

Andrew: Absolutely, Kevin. Yes, spot on.

Kevin: Good on you. Andrew Mirams from Intuitive Finance. You can use any one of the links on any one of the pages on Real Estate Talk to contact Andrew and his team.

Thanks for your time, mate.

Andrew: My pleasure, Kevin. Thanks.

The shift from buyers market to sellers market – Ben Kingsley

Kevin: What are the signs that the market is turning from a buyer’s market to a seller’s market or a seller’s market to a buyer’s market, and really why is it all that important? I’m going to discuss that now with Ben Kingsley. Ben is the CEO and founder of Empower Wealth and also the chair of PIPA.

Ben, thanks for your time. Do you guys think about this all the time – where are we? And why is it all that important? How do you measure it?

Ben: Yes, Kevin, we absolutely think about it. It’s critical. At the end of the day, the reason why we’re buying property is we want it to grow in value. If it doesn’t grow in value and we’re servicing the mortgage and the interest on that mortgage, there’s no return on investment. So, it really is something that we study deeply, because it is all about the investment return.

There are definitely things that we look for in the research that we do around that. So, how do you get to that research? The first thing I look at is auction clearance rates in city centers where auctions are the preferred means of selling. Certainly Melbourne and Sydney are a great indicator, because they give me real-time feedback. They give me feedback to know what sort of clearance rates are moving.

If we were to think about it, 65% or 66% and above is where we start to see more of a seller’s market, and anything below that, we start to get into a buyer’s market. That’s where the clearance rate is around that 65% range. That’s the indicator. Now, if we start getting up to 75% to 80%, we’re really in a great seller’s market, and there’s obviously growth being had there, because there’s a lot of competition. So, if you have that, that’s one great mechanism.

The other one is, when you’re out in the field and you’re going to open for inspections, have a look at the number of people who are going through the property. Ask the agent how has the interest been? You’ll be able to visualize that interest as well. If the sign is going out and there’s five other parties waiting out front, then you know that obviously has a bit of interest. And if that’s consistent with the five or six properties that you might inspect on a Saturday morning or a Saturday afternoon, then it’s important to read that market play in the field.

In terms of the statistical tracking that you want to be doing, stock on market is another great way of doing that. So, how do we do that? We go to the search engines, so the property portals, RealEstate.com, Domain, those types of portals. We just put in the suburb and we’ll put in the type of property that we might be interested in – being house or unit or so forth – and just hit the Search button. It’ll bring up the number of properties for that particular suburb.

Now, as a little tip to the listeners, make sure you tick off the button that says “neighboring suburbs,” so you just get accounts for that particular suburb. And that will give you an idea of the stock on market.

Now, the lower the stock, the better. You want to be tracking that over a period of time, and that will give you an indication of whether stock is coming down or going high, because ultimately this is all about demand and supply, Kevin, isn’t it?

Kevin: Absolutely. Another thing I always like to do, too, is work out how much stock is in the market. In other words, if no more stock came on the market, how long would it take to sell all of that? The lower that becomes, also the more demand you have for property.

Ben: Yes. Days on market, so it’s effectively how long are these properties taking to sell? Now, when you’re doing an aggregate of that, you use the same principles. If you’re going to do this yourself, you’ll set up a little spreadsheet, and you’ll track those properties, and you’ll see how long to take to sell.

You’ll also ask the local agents what’s the average days on sale at the moment for these types of properties? Ask two or three agents to get an idea, if you don’t have the time to sit there and do the analysis yourself. That is obviously a terrific way of seeing this. So, the lower days on market the more interest there will be.

Now, just also remember if you’re in an auction market, the days on market should still not come under 20-odd days, because what you’re normally seeing is four- or five-week marketing campaigns before they actually sell the property.

The last one that also comes into that is average vendor discounting. So, what sort of discounts are we seeing from what the property was offered for? If we’re not in an auction market and we’re in a private treaty selling market, advertised for $400,000, sold for $380,000. So we’re getting a percentage of the vendor discount that’s going in that market. Some of those search portals and CoreLogic, and those types of players provide a bit of that data.

And one final one, Kevin, which is really interesting. When I know that I’m looking at a marketplace that there really is still more sellers than buyers, I get commentary. I look at the way in which the descriptions are written by the agents.

Sometimes, if you’re going to regional areas and you’re having a look around and a couple of the ads are saying that the seller is open to offers, that this is a good buy, that the price has been reduced, those types of things, if you’re getting a bit of that sense, then you’re probably buying in a marketplace that is still potentially correcting itself, as opposed to showing signs of improving.

Ideally, we want to time our entry into a marketplace where there’s evidence of upswing, where demand is starting to exceed supply, because that’s where we’ll find those growth markets.

Kevin: Very good insight there, Ben Kingsley. Ben is the CEO and founder of Empower Wealth. Ben, thanks so much for your time.

Ben: Absolute pleasure, Kevin.

Swapping security for lifestyle – Eliane Miles

Kevin: More than half of Australians now consider it’s more important to have lifestyle than it is to actually own a property. This has been revealed in a recent study released by the Financial Planning Association of Australia who conducted the study in conjunction with McCrindle. Joining me now to talk about this is McCrindle’s Director of Research, Eliane Miles.

Eliane, what does this actually mean for the great Australian dream of home ownership?

Eliane: Kevin, in this survey of 2600 Australians, we found there has been a shift in the attitudes around the desire to own a home. This study was really about what does it mean to live the dream? Would you say that you’re living the life that you dream of? Do you deem yourself successful?

So, when we asked the question “What does living the dream mean to you?” we found that home ownership has dropped down the list to number four, so after things like having a lifestyle, having financial freedom and independence, and then having safety and security.

It’s certainly no longer on the top aspirations for what people say living their dream life looks like.

Kevin: Yes, the profile of home ownership has changed, as well. Once it was classed as the haves and the have-nots – if you owned a home, you had a lot in life – but as we’re seeing out of this report, it’s now been categorized into four main personality types, based on their ability to dream, which is what you’re leading to there. Is that what we’re seeing now? Could you give me a brief description of what you found out?

Eliane: Yes, that’s right. It’s the sense that people look at finances in different ways. When it comes to home ownership, we’ve seen the incredible jack of housing prices. Look at two decades ago, the average Sydney house price was six times average earnings; now it’s more than 14 times. In Melbourne, it was three times; now it’s more than 11 times. So, we have to take a different approach to how we look at our futures.

Some predict that if the current trends continue over the next two decades, the average cost of a house might be up to the $6 million mark. So, it really has become that thing that may no longer be the way that we define our lives or define success.

In the study itself, as you mentioned, we found four different personalities based on their attitudes towards finances. We found that about a third of the population are daydreamers. These people do a lot of thinking about the future and dreaming, but they have this propensity to act later and think a bit longer before they act.

Another third would be go-getters who do a lot of dreaming and also have that actionable step involved. Then there are another two personalities. We call them the cruisers, those who don’t really daydream and don’t really act very often – they’re about one in five – and then we have the builders, those who love to act but they really struggle to think big picture, and they make up about one in seven or so of the population.

It’s interesting to think through our propensity to be visionaries and think about the future, where we want to go in terms of our finances and aspirations, as well as whether we’re able to tangibly make that happen for ourselves.

Kevin: I’m fascinated with those breakups there. Is it a sex-related thing, or is it something to do with demographics or age?

Eliane: It’s not strongly correlated to sex. We do find there are more male cruisers, for example, but when you think about the go-getters as well as the daydreamers, they’re almost half and half. Actually, some of the women do come out as less likely to be daydreamers but then also less likely to be builders. So, it does vary in terms of the gender, but it’s usually more a propensity around life stage and, I guess, priorities as well.

Kevin: In the article inside the latest edition of Your Investment Property magazine – the article is called Aussies Chasing Freedom Not Picket Fences – there’s a really good description there of those four category types.

Eliane, just further to that, have those profiles changed in the last generation? And if so, why?

Eliane: I think there’s a sense that we’re still the nation of people who believe in their ability to create the lives that they want. And in the research that we’ve done, we always find that about four in five Australians say yes, they believe in themselves and their ability to carve out the future. But people are finding that the actionable step of turning that into a reality is getting harder, and so fewer people now over the years are saying, “Yes, I’m living the life that I’ve dreamed of.”

That has to do with the cost of housing, cost of living, but also a different way of looking at goals and thinking about the future as a result of many of these previously aspired acquisitions like home ownership no longer being so far in reach.

Kevin: Reading the article –it’s a great read, too – I can’t help getting the feeling that it’s all changed. We used to judge “made it” as having a family and having your own home, but it now is more about lifestyle. Am I correct in reading it that way?

Eliane: That’s right, and so our family composition is changing as well. We have nearly as many couple households without kids as we do families with children, and the growth in solo households as well as group households, multi-generational households. You have many generations now what we call sandwiched, people in their 40s and 50s looking after their aging parents while also still raising their own teenagers and young adults in their home.

And for the first time in a century, actually, we’ve seen the size of households change in Australia and actually increase. Where it used to be on the downward trajectory, now it’s back from 2.5 to 2.6. So actually seeing houses increase in size for the first time as a result of some of these cost of living pressures.

Kevin: I’ve been talking to Director of Research at McCrindle, Eliane Miles.

Eliane, thanks for your time.

Eliane: Thanks so much, Kevin.

John McGraths tips for 2018 – John McGrath

Kevin: This week, John McGrath released his annual McGrath Report, and John makes the point right at the outset that the most frequent question he’s asked year after year is “What is the market doing?” And as he points out, there is no one market in Australia.

John, thank you very much for joining us. How are you?

John: Good, Kevin. Yes, it’s interesting, isn’t it? Because everyone you speak to, many of them are experiencing different markets, and I think the report articulates the fact that if you had to break it into a couple of markets, one is Sydney and Melbourne that has seen very strong rises over the last five or six years. In fact, some areas have doubled values, but at least 50%.

And yet in other parts of the country – in South East Queensland, too, to a lesser degree, but in other parts of the country, there’s been what I would call really minimal growth. I think that will change going forward.

Kevin: As you indicated, you still see the Australian property market as Sydney and Melbourne and the rest of the country. Is that becoming less acute? Is the rest of the country starting to catch up, do you think? Or will it?

John: It will. Not yet. We’ve seen Sydney and Melbourne, right up until this interview, have been performing very strongly. We haven’t seen much of a drop off. Sydney is starting to slow down a bit now, Melbourne got a little bit more strength to go. But I think it would be fair to say – certainly in my view, anyway – that both of those markets are very much towards or at their peak.

I think there are many other markets – South East Queensland – that are probably midway through. I think if you were looking at a percentage, I’d say that South East Queensland might be 55% or 60% through, and Sydney and Melbourne are 95% to 100% through their cycle. So, I still think there’s good growth up in the Queensland area, especially South East Queensland.

Perth is another area that I think has obviously been very hard hit through the mining issues, and that’s been really down, but I think it’ll catch up. All the markets will eventually catch up, but I think South East Queensland will be the stellar performer over the next three to five years.

Kevin: Now, you’re still sure there is no bubble. Why is that?

John: I’ve heard it so many times, Kevin. I look at it, and every time there’s a cycle rise and there’s some strong growth in areas like Sydney and Melbourne and other parts of Australia, people say, “Oh, Sydney must be 20%, 30%, 40% overvalued.” I think the reality is that Sydney and Melbourne are the New Yorks of Australia, and they’re probably never going to be caught by the other cities.

I think there is a gap there, which is in my opinion too wide today, but there will always be a gap going forward. I just think the weight of money coming into the two big east coast cities will always have them ahead of the rest. But right now, the gap is as big as I’ve ever seen in three decades of being in real estate, and I think that’s not going to last.

So, the question is are Sydney and Melbourne overvalued? I think they’re not. I think they’ve reached probably where they’re going to reach for this cycle. We might see a very small correction in those markets of a few percent going forward over the next 6 to 12 months, but I actually think the issue is that the rest of Australia is probably undervalued.

I think it’s more of a media headline, “Market overvalued.” I’m sure there are spreadsheets that say that compared with other times or other parts of the world, Sydney looks a little bit on the expensive side. But it’s a big city that people want to live and invest in.

We were just talking before we got on the interview about Asia. There are literally billions of people in that part of the world who are rapidly becoming very much the middle class and they’re earning money they’ve never earned before. They will all be looking to invest elsewhere, and they’ll also be looking to migrate to great countries like Australia. So, I think our future in terms of property values is really strong.

Kevin: How are property prices impacting how we live and where we choose to live, John?

John: Again, I’ll refer to Sydney and Melbourne, which for a lot of people have become in certain parts unaffordable. It’s not uncommon that in a new development in Sydney, a one-bedroom is going very close to $1 million, whereas as you would know, in South East Queensland – which is an equally beautiful part of the world – you can buy a nice house in many areas for $375,000 to $450,000. I think that from that aspect, we are finding a lot of people in Sydney and Melbourne are going to find it very hard to find a place.

At the other end of the market, you have people who are probably in their 50s, 60s, 70s who wound up finding themselves in a home that’s now very expensive, and perhaps they’ve had it for years or even a generation or two. They thought it wasn’t worth much, then they check with their local real estate agent, and they’re saying, “You’ll probably get $2.5 million” for this house. I think those people are going to be saying, “Well, for the next 10, 20, 30 years of our life, we might take that money and either look for a sea change or a tree change, or we might downscale here and invest elsewhere.”

We’ve seen the numbers. As you know, Kevin, we’ve seen strong migrationary numbers returning again, the strongest for many years. So I think it’s a very healthy time.

Kevin: John, what sort of an impact are those moves to regulate the market with taxes and rates having on market conditions overall, do you think?

John: I’m very anti the overseas levy that’s been placed on buyers from overseas, only because I think that, one, we’re now all living in a global city or a globalized economy, and I think that it’s very dangerous to be saying to people outside of the immediate area or inside Australia, “We don’t want your investment.”

I think we should be encouraging other people to migrate and to invest into Australia – the right people in appropriate numbers. So, I think it’s a very strange signal when state governments say, “Well, if you want to come here, we’ll let you, but you’re going to have to pay a lot more stamp duty,” for example.

We’ve already seen a big drop off in the southern states in terms of people overseas buying. I’ve never felt the growth in the southern states values was a problem around demand; it was more of a problem about supply. We’ve had an extreme housing shortage, so from that respect, I think it’s dangerous, because Canada put the stop sign up and said, “We don’t want anyone’s money any more,” and their real estate market really suffered fairly badly, and it hasn’t recovered yet.

I just think this is a big country; with the appropriate development controls in place, I think we could continue to grow our cities in the right places and invite people from other parts of the world to come and participate.

Kevin: I’m talking to John McGrath about the McGrath Report, which has just been released.

John, let’s talk about developers for a minute. Are they being spooked by some of these restrictions and regulations that are being imposed on them?

John: In some instances and in some cities, they’ve had a few very good years, but I think they were enjoying the fact that in addition to a strong local market, there was overseas interest. Sydney had a strong buying interest from China, which was very well documented, and a lot of that has dried up. I would say 75% or 80% of the overseas money looking to invest in Australia, if not move here, has dried up.

There’s no doubt when a developer buys a product, as long as they can get financing and as long as they have confidence there’s an end user or an end buyer for the product, they’ll go and develop. If they’re concerned about building and they’re not finding buyers at the end of the process, that’s going to be an issue. So, it will no doubt take some of the wind out of the market by putting the stop sign up to overseas investors.

Kevin: John, before I let you go, your closing thoughts on the future of the property market? What do we need to do to make housing more affordable? Is that possible?

John: I think there are a few things – no doubt – with the affordability. The supply issue is the main one. So, we need to have good quality, complying developments processed far more quickly. In some instances, it still takes two years for developers to get complying developments approved and through the councils, both local and state. I think if that sped up, that’ll certainly provide a lot more stock in the market.

I think with building materials, there are alternative styles of building happening, Kevin, and that should make things a little bit less costly. And the third one is infrastructure. There is good infrastructure happening throughout most parts of Australia, but I think there was a period certainly during the GFC where there was very little infrastructure, so that really put a bottleneck in many areas. Now, infrastructure, new roads, new hospitals, new employment opportunities will definitely open up some other opportunities for people to live in new areas, I think.

Kevin: John McGrath, thanks so much for your time, mate. Thank you.

John: Thanks, Kevin.

The 2 metrics to measure value – Kylie Davis

Kevin: If you’re thinking of selling a property or if you’re thinking of buying a property, one of the things that you are going to have to know about is price in details. How much is your property worth, or how much is the property worth that you’re going to be buying?

There are two major metrics that property and financial professionals look at to answer this question. To help us understand what they are, I am joined by Kylie Davis. Kylie is the head of content and property services marketing at CoreLogic.

Kylie, what are those two metrics, and could you just explain their importance to us?

Kylie: There are two key metrics, Kevin. The first one is median sales price, and that’s one that we have heard for a very long time about what the market is doing – what was the median price of sales in a suburb or in a local market? The second one – which is a little bit more modern – is median value.

It’s really about the detail and how those two numbers are compiled, but the short answer is that median sales price talks about the middle price of what’s selling at the moment, but median value talks about the value of property within the suburb as a whole – the middle value of all of the houses in the suburb.

Kevin: We should really look in some detail of both of those, because there’s a lot of confusion around medians, what they really mean. People just think that if the median sale price goes up, then values have gone up. But it doesn’t quite work that way. It’s not that simple, is it, Kylie?

Kylie: No, it doesn’t. Median sales price is really the middle value of what is selling at the moment, and it’s a number that’s collected only off properties that have sold. So, if you live in a suburb of, say, 3000 houses and 10% of that market sell that year – so 300 houses; that’s a pretty high level, but let’s stick with it – then it’s the middle value. It’s what property number 150 or 151 sells at that tells you what the middle sales price was.

So, if you’re in a suburb that has a lot of three-bedroom homes but then there’s a new development that goes on the market that’s full of four-bedroom homes that are a little bit more specced up, and those highly specced properties are selling, they will push the median sales price up because they’re selling for a higher number and they’re putting volume into the sales in the market. Or if at the other end, you have maybe some two-bedroom properties that are selling at the lower end of the market, they’ll pull the median sales price down.

Median sales price can move a lot for different reasons. It can move because the sales price of properties is going up or down, but it can also move because the types of properties selling are different to what typically would sell in that market. And it’s also based off the small proportion of what’s selling in a suburb.

Kevin: Because if you’re looking at a suburb where there’s a high number of renovations happening, this is really going to impact that median sale price, isn’t it?

Kylie: Yes. So, you might see a median sales price for a lot of unrenovated properties but then the renovated properties will start to come on to the market and you’re comparing them to what has been unrenovated, and it gets a bit out. So, you might turn up to an auction thinking that you’ve done your research and you know what a property is going to sell for, but you’ve based it on a median sales price that’s about unrenovated properties.

Median value is a more useful number in understanding what the genuine value of property is within a suburb, because that’s calculated – often on a daily basis; we certainly calculate it on a daily basis at CoreLogic – based on every single property across Australia. So, every suburb is based off of a median value.

That’s a more genuine reflection of whether there’s growth happening or a decline happening in a suburb. But it’s not a great tool if you’re wanting to buy, because it’s only going to give you a price guide, really. And the guide of it is that if there’s not a lot of property on the market at the time and you turn up to the auction or to the sale and there’s a lot of competition for that property, then just because the median value of the suburb is a certain amount doesn’t mean that the property is going to sell for that.

Kevin: Are there reports available that will demonstrate this to us, the median value and the median sales price?

Kylie: Yes. A property report will basically extrapolate a value for the property that you’re looking at based off the median value of the suburb and comparing that particular property to a host of other similar properties in the area to come up with an estimate of what the value is.

Median sales prices are usually quoted by agents in the current market appraisals that they give you. So, the combination of your own research looking at what the median value is plus the research that an agent gives you about a property will help you understand what’s going on in terms of supply and demand and where prices are going.

Kevin: Kylie Davis is head of content and property services marketing at CoreLogic and also runs the CoreLogic Reports Store. She knows what she’s talking about when it comes to reports, as you can hear.